Under FASB standards, how would a not-for-profit treat a conditional pledge?

• A. Recognize revenue immediately upon pledge.
• B. Recognize revenue only when pledge conditions are substantially met.
• C. Recognize revenue when cash is received.
• D. Recognize the pledge as a liability.

Answer: (B)

The main idea is that conditional promises to give are not counted as revenue until the donor’s condition is substantially met. Under FASB for not-for-profits, recognizing revenue hinges on whether the pledge is unconditional. If a pledge is conditioned on a future event, the organization does not have an unconditional right to the resources, so revenue is not recognized yet.

Substantially met means the condition has occurred or is so assured that it is effectively satisfied, allowing the organization to keep or use the resources. Only in that moment does the pledge become revenue, and it is recorded in the period the condition is substantially met (with any donor-restriction considerations reflected in net assets).

This prevents inflating revenues before the donor’s condition is satisfied. Recognizing revenue immediately would misstate resources, and recognizing revenue only when cash is received would ignore the timing inherent in the conditional promise. Treating the pledge as a liability isn’t the standard approach in this context; the emphasis is on waiting to recognize revenue until the condition is met.